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This week we saw the Mueller Industries, Inc. (NYSE:MLI) share price climb by 11%. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 20% in the last three years, falling well short of the market return.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Although the share price is down over three years, Mueller Industries actually managed to grow EPS by 0.9% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. However, taking a look at other business metrics might shed a bit more light on the share price action.
With a rather small yield of just 1.2% we doubt that the stock's share price is based on its dividend. Revenue is actually up 6.3% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Mueller Industries further; while we may be missing something on this analysis, there might also be an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
If you are thinking of buying or selling Mueller Industries stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Mueller Industries's TSR for the last 3 years was -10.0%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Mueller Industries shareholders are up 9.4% for the year (even including dividends) . Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 2.2% over half a decade This suggests the company might be improving over time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Mueller Industries (of which 1 is a bit unpleasant!) you should know about.
We will like Mueller Industries better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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